The financial investment industry has been transformed by developments of communication and computer technologies. Low cost personal computers and the Internet have allowed individual investors to gain access to financial information as well as trading and investment technology. The advent of self-directed retirement savings accounts has increased the need for market data and for tools to aid investors in their decision-making. In the equity and mutual fund markets, various platforms and tools sets have been developed and made easily available to individual investors via computer systems and the Internet.
The fixed income market has traditionally been an institutional market that serves, for example, pension funds, insurance companies and banks. The fixed income market lacks price transparency and liquidity. Trades executed in the fixed income market are often done in very large quantities. There are very few ways for individual investors to gain access to bonds offered for sale and practically no tools available to evaluate the offerings beyond rudimentary yield calculators. In addition, market information is fragmentary and often unavailable to retail investors.
The fixed income market is generally segmented into the Treasury, corporate bond, municipal bond, mortgage-backed security, federal agency and asset backed securities. The Treasury market, which comprises the debt of the United States government, has historically provided the most actively traded and widely owned fixed income securities. It is widely believed that this debt will never default and is considered the “gold standard” for safety. Therefore, the risk of owning other types of debt is usually measured against the safety of owning Treasury debt.
Almost all fixed income securities, other than Treasury debt, are rated by rating agencies that are quasi-regulatory groups that evaluate the creditworthiness of firms that issue debt securities. The rating agencies are designated “Nationally Recognized Statistical Rating Organizations” by the United States Securities and Exchange Commission and play an important role in the financial markets.
A retail investor seeking to evaluate fixed income securities offered for sale is typically presented with tables of symbolic or alphanumeric rating data. Each of such symbolic ratings may correspond to an evaluation of a security from a particular rating agency and may have well defined semantic meanings in terms of the creditworthiness of the security. In addition, since there may be more than one such rating agency, each of such rating agencies may have its own rating scheme with a different symbolic rating scale. When a retail investor receives such rating information, it is very difficult to review the offerings and understand the relative risk of one security versus another. The difficulty is related to both the fact that each fixed income security may be associated with various credit ratings issued by different rating agencies and the retail investor's ability to weigh the risk and return based on such information. It becomes even more difficult when a retail investor attempts to evaluate the risk and return of a portfolio of rated debt. In the current market, there are no available systems or tools that facilitate retail investors in examining market information and in making fixed income market investment decisions. This shopping difficulty prevents many retail investors from participating in the fixed income market.